Climate:

As stakeholders debate the availability and viability of carbon capture and storage technology as it relates to U.S. EPA's proposed New Source Performance Standards for new power plants, what are the key legal and economic questions facing the agency? During today's OnPoint, James Rubin, counsel in the global energy, transport and infrastructure sector at Dentons and a former Department of Justice representative to the White House Climate Change Task Force, discusses the next steps for EPA and industry after last week's announcement.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is James Rubin, counsel in the global energy transport and infrastructure sector at Denton. Jim, it's nice to have you on the show.

James Rubin: Nice to be here. Thank you.

Monica Trauzzi: Jim, EPA finally proposing its much anticipating rule for new power plants last week; does the proposal mean expectations, or were there some key variations where the agency decided to really take a marked position?

James Rubin: Well, it wasn't a lot of surprises because there was a lot of noise about this proposal for a long time, and lots of leaks and suggestions on what was going to happen. But EPA did make some significant changes. I'd start from with what didn't change. There is still a requirement, for at least gas plants, they need a standard, the same standard, a thousand pounds of carbon dioxide per megawatt hour, which is a standard that a modern combined cycle plant could make. And there still a requirement that you can do coal if you do carbon capture, although they've changed it a bit, so some of the underlying bones are still there. But EPA did go back, and they claim that they looked at two million comments and looked at industry data and they've changed a couple of pieces, which they've done arguably for defensibility purposes. The biggest one is they've created two standards. But the standards are pretty close. So EPA is pretty much sticking with the idea that if there is going to be coal, there is going to be CCS.

Monica Trauzzi: Right. So the availability of CCS is the major sticking point here, and it's up for debate. Can the agency really use one project, this Kemper project in Mississippi, as sort of the standard for the entire industry, is there an overreach here, or are they trying to help the industry move along to get to that more advanced phase?

James Rubin: Uh, it depends on your position, I guess. It's, the EPA definitely taking a creative and fairly aggressive approach here. Overreach is a bit strong word I'd use. I'll let the courts determine that, and they will fairly soon. [Laughter]. But there, EPA is in a very unusual world in this place. It's not usual where they are having to deal with a pollutant of this nature, and the controls that are required. And they are looking for ways of being creative within their authority in the Clean Air Act. I expected to see a lot more in detail, myself, about carbon capture, and I'm very surprised to see essentially four plants, none of which are built yet, two, which are almost built, and even looking at a plant that's not even a power plant, that's been in operation for a year. I mean it's not a lot there; yet, they do a lot of analysis in their rule on case law indicating why they can force technology further than it is right now.

Monica Trauzzi: So then how does this look in court, I mean is this court ready? Will this stand up in court? What do you think the prospects there are?

James Rubin: Well, there are a couple of issues that are going to be out. The first issue is going to have to do a separate engagement finding, and that's already been put up by some folks that they need to do that. EPA has created a kind of a novel approach here by saying, "We think we have reasonable basis for regulating." We'll see if that holds up. That's probably not the likely Achilles' heel of this rule because they did do an engagement finding, which by the way isn't out of the woods yet because the Supreme Court will determine at the end of this month whether they are going to take the case, where the engagement finding was adopted. But pushing that aside, the carbon capture issue, it's going to be an issue at really first impression in the sense that the court is going to have to look at a very limited amount of data and determine whether the EPA has made its case, whether it's technologically feasible, whether the costs are reasonable, and whether EPA has, how much authority they have to push technology beyond where it is right now. I think it's going to be a very closed question, and EPA is going to have to do little bit more work before it's all over to even get to a place where I think they have a strong argument.

Monica Trauzzi: So what kind of timeline are we looking at for litigation, and then how does that impact the future of the next rule that we're expecting in June for the existing power plants?

James Rubin: Well, there's your answer. We're getting the next rule in June if they keep to the presidential requirement. To do that, EPA has to put out this rule in final before June. And to do that, they got to get it to OMG 60 days or less, or longer, I should say, before then. So we are talking about an extremely expedited schedule. This rule goes final sometime before June 1, and then 60 days after that; it comes to litigation. We won't know what's going to happen to this rule until well into the proposal for the existing unit stage. So EPA is setting a predicate, which could all fall down if this rule gets successfully challenged, but we won't know that probably for another year and a half at the least, probably longer.

Monica Trauzzi: Is there any precedent for the agency moving forward with regulations with sort of non-commercially scaled technologies ore perhaps technologies that haven't been proven quite as much?

James Rubin: Very limited. EPA has put in their rule, which does look like it's written for a court's brief. It's very legal. They still had a couple older DCC circuit cases, where the courts have acknowledged that the EPA has some authority to move a product forward, but this is a very different world, a very different set of technologies. And even if EPA's estimates are right, there is so much that has to happen just structurally in terms of pipelines, in terms of legal regimes, state's involvement to get CCS working everywhere, beyond just a few plants. It's still surprising EPA went this far.

Monica Trauzzi: Well, how far were you expecting them to go?

James Rubin: I thought they might, they would probably give more time to CCS. They went from 30 years to seven to one, really, because it's a 12-month program unless you do a seven-year average. So they went a different direction, I should say. [Laughter]. I don't want to say the wrong direction, but they certainly went a different direction.

Monica Trauzzi: And to that end, industry stakeholders are saying that this rule ensures that no new coal will be built in the United States. Is that taking it a little too far, or do you think there is some merit there?

James Rubin: Well, certainly no new coal built without the top technologies. That's kind of accepted. EPA did its works to determine that it didn't think any coal plants would be built. So the answer might be they may be right, but they are not being built because of this rule. They are not being built because it's cheaper to build gas plants. And the question is anyone planning on building any coal plants between now and the next decade with or without CCS. And EPA looked at EIA's projections, they looked at their own projections, they looked at the industry, and they saw very few coal plants going out there. So it is going to be difficult to build a coal plant without CCS under this rule if it's final. The question is anybody actually going to build them anyway.

Monica Trauzzi: And the other question is who should be funding investments to advance CCS. Is there any direction on that at all?

James Rubin: Well, I mean obviously government funding would help all of these programs. The four projections the EPA looked at were all funded by the government. But EPA's idea and hope that by pushing it, the envelope this way, they're going to get the industry, itself, to incentivize and subsidize and develop full CCS, not just partial CCS, and of course we all pay for that through our power bill, so ...

Monica Trauzzi: So your sense is that they are pushing the envelope, what does that then tell us about how that existing power plant rule might look like in June?

James Rubin: That's an interesting question because EPA has been very clear about saying this rule is not supposed to affect the existing plant rule. There are very different standards; there are very different features, the way the statute is written. But EPA is clearly in the very aggressive mode. And it's not just they are aggressively on coal plants, they are trying to essentially both take advantage of the transformation of the power sector, and also push it. They are riding a wave and they are creating the wave at the same time. So one would have to expect that that same momentum will be used in the existing rule: Expect systemwide efforts, expect very novel interpretations of their authority, and there might very well be a rule for CCS in that. It's hard to imagine a requirement to put the CCS on existing plants, but the EPA did put both gas and coal in the same overall source category as an alternative. They may be thinking ahead about creating opportunities for trading and balancing in the future. So I think there is going to be a lot of relevance to this in the existing rule. You'll have to look differently.

Monica Trauzzi: All right. We are going to end it right there. I thank you for coming on the show.

James Rubin: Thank you.

Monica Trauzzi: Thanks for your time. And thanks for watching. We'll see you back here tomorrow.